Our Israeli distributor sued us in Tel Aviv despite our ICC arbitration clause. How do we stop the case?

File an application to stay the Israeli proceedings, and file it before you say anything about the merits of the claim. Section 5 of the Arbitration Law 5728-1968 directs the court to stay a claim that falls within an arbitration agreement if the party asking for the stay was, and still is, willing to do everything needed to hold the arbitration, unless there is a special reason why the dispute should not go to arbitration. Section 6 applies the same approach where the arbitration agreement is governed by an international convention, which brings in the New York Convention for an ICC arbitration seated in Paris, since France and Israel are both parties. The request can be made in the statement of defence or separately, but no later than the first time you address the substance of the claim.

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Detailed Answer

Israeli courts generally respect arbitration clauses, but they look closely at conduct. Readiness to arbitrate is judged on what you actually did, not on what the application now says. A supplier that ignored the distributor's notice of dispute, refused to pay its share of an ICC advance or waited months before mentioning the clause will struggle. The special-reason exception is used sparingly. The version that comes up most often is a claim that also names defendants who never signed the arbitration agreement, such as a local agent, a sister company or individual managers, where the court may decide that splitting one dispute between a courtroom and a tribunal risks contradictory results. For agreements covered by the New York Convention, Article II(3) points towards referral unless the clause is void, inoperative or incapable of being performed, and arbitration commentators have noted that Israeli courts have not fully accepted that the Convention removes their residual discretion under Section 6. Which court hears the application depends on the size of the claim: a distributor's claim above NIS 2,500,000 is filed in the District Court, and a smaller one in the Magistrates' Court.

A French supplier often learns of the case late. The distributor will usually have obtained leave to serve the claim outside Israel under Regulation 166 of the Civil Procedure Regulations 5779-2018, and papers sent abroad can take weeks to reach the right person in Lyon or Paris. From the date of service, Regulation 9(b) allows 60 days to file a statement of defence, and that is the practical deadline for the stay application too. Do not file a defence on the merits in the alternative, and be careful with a request for more time that argues the claim is weak, because a court can treat either as a step on the substance. The stronger course is an early stay application, with the ICC request for arbitration already filed or at least drafted, so that your readiness to arbitrate is visible on the Israeli file. If the court stays the claim and the tribunal later rules in your favour, the award will come back to Israel for enforcement, as our answer on enforcing a foreign arbitration award against an Israeli company explains. A plain jurisdiction clause without arbitration works differently, which is covered in our answer on a Tel Aviv jurisdiction clause.

In Practice: Under Sections 5 and 6 of the Arbitration Law 5728-1968, the stay must be requested no later than your first argument on the merits, and the statement of defence is due 60 days after service under Regulation 9(b) of the Civil Procedure Regulations 5779-2018. A claim above NIS 2,500,000 is heard by the District Court, which will ask whether you were ready to arbitrate from the moment the dispute arose, not only from the day you applied.

When to Consult a Lawyer

• You have been served with an Israeli claim that falls under an arbitration clause, because the stay application must come before any step on the merits and the 60-day defence period is already running from service.
• The distributor has also sued your Israeli agent, a group company or individual managers who never signed the clause, which is the situation most likely to produce a special reason to refuse the stay.
• The claim relies on Israeli protective legislation or alleges that the arbitration clause is void or inoperative, where the fight over whether the clause applies will decide the forum for the whole dispute.

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Speak With an Israeli Attorney

An Israeli litigator can file the stay application within the deadline, coordinate with your French and ICC counsel, and stop the Israeli file from becoming a second front.

Contact us for a confidential initial consultation.